Can a seller-installer of equipment buy the labor its subcontractors perform on installation, maintenance, repair, and warranty work for resale?

Plain-English summary

British Telecom (CBP) Inc. sells and installs electronic equipment. It bills customers for two kinds of labor: (1) installation, charged per project based on the actual hours worked, and (2) maintenance and warranty work, charged as an annual or periodic fee whether or not any service is actually performed. It asked whether it may buy the labor used to fulfill those service and warranty obligations for resale.

The Department held that it may — the company can issue a Resale Certificate (Form ST-120) to its subcontractors for that labor.

• The company resells taxable services. Installing tangible personal property is a taxable service, and under the regulations the sale of a maintenance or service contract is itself a taxable transaction (20 NYCRR § 527.5(c)(1)). Because British Telecom charges its customers for these services, it is a reseller of them, not the final consumer.
• Services bought for resale aren't taxed to the reseller. The services of installing, maintaining, servicing, or repairing property are not taxable if performed for resale (20 NYCRR § 527.5(b)(1); § 526.6(c)(8)). A vendor selling service contracts, and a vendor performing warranty work, may likewise purchase for resale the property and services it transfers to the customer in connection with those contracts (§ 527.5(c)(2), (d)(2)).
• The result: British Telecom may give its subcontractors a resale certificate for the installation, maintenance, repair, and warranty labor they perform, and pay no tax on that labor — the tax is instead collected when the company bills its customer.

What this means for you

If you resell a service, you can usually buy it for resale

When you charge your customer for a taxable service — installation, repair, a maintenance or service contract — the labor you buy from a subcontractor to actually deliver that service is a purchase for resale. Give the subcontractor a properly completed Form ST-120 (Resale Certificate) and don't pay tax on their charge; you collect the tax from your customer instead.

Maintenance and service contracts are taxable up front

The sale of a maintenance or service contract is a taxable transaction in New York, even a fixed annual fee charged whether or not any service call happens. That taxability is exactly why the underlying labor qualifies for resale treatment — you're selling a taxable thing, so your inputs to it aren't separately taxed to you.

Warranty work follows the same logic

Repair or maintenance done without charge under a warranty isn't a taxable sale, but the vendor performing that warranty work may still buy for resale the property and services transferred to the customer; and where a manufacturer reimburses the repairer for warranty work, the reimbursement isn't taxable because the work was for resale.

Common questions

Q: Do I owe tax on the labor my subcontractor bills me?
A: Not if that labor goes into a taxable service you resell to your customer. Give the subcontractor a Resale Certificate (Form ST-120); you collect the tax from your customer.

Q: Is the annual maintenance fee I charge my customer taxable?
A: Yes. The sale of a maintenance or service contract is a taxable transaction, even when the flat fee is billed whether or not a service call occurs.

Q: What about free warranty repairs?
A: Repairs made at no charge under a warranty aren't a taxable sale, but you may still buy the parts and labor for those repairs for resale, and a manufacturer's reimbursement to you isn't taxable.

Citations and references

Regulations:

• 20 NYCRR § 527.5(b)(1) — installing, maintaining, servicing, or repairing property is not taxable when performed for resale
• 20 NYCRR § 527.5(c) — the purchase of a maintenance or service contract is a taxable transaction; the contract vendor may buy transferred property for resale
• 20 NYCRR § 527.5(d) — warranty work: uncharged warranty service is not taxable, and the vendor may buy transferred property for resale; manufacturer reimbursement is not taxable
• 20 NYCRR § 526.6(c)(8) — purchases for resale

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1990.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a90_3s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-90(3)S
Sales Tax
January 18, 1990

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S890830A

On August 30, 1989 a Petition for Advisory Opinion was received from British Telecom
(CBP) Inc. 150 E. 52nd Street, 12th Floor Tax Department, New York,
New York 10022.
The issue raised by petitioner, British Telecom (CBP) Inc., is whether labor when used to
fulfill service or warranty contracts may be purchased for resale.
Petitioner sells and installs electronic equipment and charges its customer for two types of
labor. They are: (1) installation of equipment; and (2) maintenance and warranty work. The charge
for installation of equipment is on a project by project basis and is based on the actual hours spent
on installation. The customer may also pay a fee for maintenance and warranty work annually or
periodically whether or not any service is performed.
The following section of the Sales Tax Regulations apply to Petitioner's transactions:
§ 527.5 (b) Exceptions. (1) The services of installing, maintaining, servicing or repairing
tangible personal property are not taxable if the services were performed for resale. See section
526.6(c)(8) of this Title.
(c) Maintenance and service contracts. (1) The purchase of a maintenance or service
contract is a taxable transaction.
(2) The vendor making sales of such contracts may purchase for resale any tangible
personal property which is transferred to his customer in connection with the services
rendered.
(3) Any charge made for services rendered in addition to the purchase price of the
maintenance or service contract is taxable.
Example 1:

A vendor selling home appliances also offers a
12-month extended service contract with
unlimited parts and labor. The charge for the
service contract is taxable.

Example 2:

The same vendor also offers a service contract for
the price of $50 under which the purchaser will
receive one service call at no additional charge,
including parts and labor, and each additional
service call will cost the purchaser $5 for parts
and labor. All the charges are receipts subject to
tax.

-2­
TSB-A-90(3)S
Sales Tax
January 18, 1990

(d) Warranty work. (1) Repair or maintenance services rendered, without charge to a
customer under a warranty agreement are not taxable.
(2) The vendor performing the warranty services may purchase for resale any tangible
personal property which is transferred to his customer in connection with the services rendered.
(3) Charges for services rendered which are not covered by the warranty are taxable.
(4) Where a manufacturer reimburses a vendor or repairman performing warranty
work, the reimbursement is not taxable, as it was for resale.
Based upon the above sections of its Sales Tax Regulations, Petitioner may issue a Resale
Certificate to its subcontractors for the purchase of labor used to perform installations, maintenance,
repairs and warranty services.

DATED: January 18, 1990

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.